In Tandrin Aviation Holdings Ltd v Aero Toy Store LLC [2010] EWHC 40 (Comm), Mr Justice Hamblen awarded summary judgment against a party who sought to argue that the stark change in market conditions triggered a force majeure clause.

Facts

Tandrin entered into an Aircraft Sale Agreement (the Agreement) with ATS for the sale of a jet aircraft for US$31.75 million. Pursuant to the Agreement, ATS paid a US$3 million deposit to an escrow agent; with the balance due upon delivery of the aircraft. When ATS failed to take delivery of the aircraft or pay the balance, Tandrin terminated the Agreement and sought recovery of the deposit.

ATS's principal defence was that the "unanticipated, unforeseeable and cataclysmic downward spiral of the world's financial markets" triggered the force majeure clause in the Agreement. Tandrin sought summary judgment.

Decision

Mr Justice Hamblen rejected ATS's argument and held that it could not rely upon the force majeure clause to excuse its non-performance. He noted that it is well established under English law that a change in economic or market circumstances affecting the profitability of a contract or the ease with which the parties' obligations can be performed, is not regarded as a force majeure event. There has been no reported case where change of economic or market circumstances has been held by any English court to amount to force majeure.

That said, whether a force majeure clause in a contract is triggered depends on the proper construction of the wording of the relevant clause. The force majeure clause here did not specifically refer to economic circumstances and Hamblen J could see no basis for construing the clause so as to include any funding difficulties encountered by ATS. Though it was not pleaded, he also noted that there was nothing in the doctrine of frustration that would assist ATS's argument.

Accordingly, the court granted summary judgment in favour of Tandrin.

Commentary

It is no surprise that the judge gave short shrift in this case to ATS's attempt to avoid its obligations under the Agreement on the basis that its changed economic circumstances triggered the force majeure clause.

The decision follows a 2005 Commercial Court case, Thames Valley Power Ltd v Total Gas & Power Ltd [2006] 1 Lloyds's Rep. 441 (in which this firm acted for the claimant), where the defendant's attempt to rely on a force majeure clause was similarly rejected. There, Mr Justice Clarke referred to a line of cases on force majeure clauses and frustration to the effect that the fact that a contract has become more expensive to perform, even dramatically more expensive, is not a ground to relieve a party on the grounds of force majeure or frustration.

These cases do not rule out the possibility that a force majeure clause could be triggered by changed circumstances as a result of the credit crisis, but they illustrate that the clearest possible language is required to demonstrate that the parties intended this outcome. Alternatively, parties could provide for such an eventuality through a material adverse change clause or express termination rights.